Scholarship News

Should More Changes Follow Switch to Direct Loans Program?


May 14, 2010
by Scholarships.com Staff
July 1 marks the official date that colleges, if they haven’t already, must transition to the recently approved Federal Direct Loans Program. Schools will no longer offer students the option of having private banks or credit unions handle their federal loans; federal loans will now be coming directly from the U.S. Department of Education. Advocates of the student loan bill have said this will make the process more seamless and fair, with the government taking responsibility for keeping interest rates manageable. And private loans will still be available via the traditional channels, although those loans are typically offered at higher interest rates.

July 1 marks the official date that colleges, if they haven’t already, must transition to the recently approved Federal Direct Loans Program. Schools will no longer offer students the option of having private banks or credit unions handle their federal loans; federal loans will now be coming directly from the U.S. Department of Education. Advocates of the student loan bill have said this will make the process more seamless and fair, with the government taking responsibility for keeping interest rates manageable. And private loans will still be available via the traditional channels, although those loans are typically offered at higher interest rates.

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The student loan debate has been a constant in the world of higher education, as legislators and administrators look for ways to reduce the debt of graduates. This week, The Christian Science Monitor considered student loans in a different way. Is it ethical to send students out into the world with all this debt, especially when they may not be making enough in their chosen careers to pay back those loans in a timely fashion? Are student loans moral?

The Christian Science Monitor piece looks at the history of the student loan industry, questioning whether it was ever right for Congress to increase borrowing amounts to current levels, or to offer students described as “in need” much easier access to federal loans through the re-authorization of the Higher Education Act in the 1990s. According to the Project on Student Debt, student loan totals only continue to rise. The average national debt for graduating seniors with loans rose from about $18,650 in 2004 to $23,200 in 2008. Meanwhile, employment prospects have not increased at comparable levels; by 2009, the unemployment rate among new graduates hovered near 11 percent, the highest on record.

It isn’t just a case of telling college students not to borrow so much. Student loans are often a necessary evil, and while debt can be minimized some through scholarships and grants, most students will end up taking on some amount of debt. The Monitor questions whether there should be more strict limits on borrowers that exist in other scenarios where credit checks and expectations that borrowers will be able to pay back what they borrow are enforced. There is no guarantee of a job after college, after all, so why shouldn’t the fact that a student is unable to pay off more than the minimum on their credit cards be taken into account more when they take out loans? (On that note, the U.S. Senate has approved an amendment that would lower “swipe fees” that banks charge college bookstores when students use their credit cards for purchases.)

Student loans are a hot topic, and will continue to be. What do you think? What else can be done to reduce graduates' debt, especially among those graduates who are not entering high-paying fields?

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